REAL ESTATE BLOGGER -- DIANA C. GOLOB

Diana C. Golob is a senior vice president in the corporate services unit of Ostendorf-Morris Co.

Diana Golob photographed this retail district in India.

India's parliamentary government recently passed a law giving each state the authority to allow for a 51% foreign direct investment in multi-brand retail. Previous regulations only permitted foreign multi-brand retailers to enter the market through franchise agreements with domestic companies, own up to 51% in single-brand retail and 100% in cash-and-carry ventures.

The first multinational retailers to enter the market under this broader regulation could include companies such as Wal-Mart Stores Inc., the American discount superstore; IKEA, the privately held Swedish company that designs and sells ready-to-assemble furniture, home accessories, and appliances; Tesco PLC, the British grocery and general merchandise retailer; and Carrefour S.A., the French hypermarket superstore.

There has been a fierce debate regarding this change in regulation, with one of the strongest opponents being the Bharatiya Janata Party. Some speculate that they could have a better standing after the 2014 general elections in India and thus greater influence over this matter. Their major objection is the claim that multi-national retailers will put smaller domestic “kirana” shops out of business. Presumably this party also benefits in some way from the traditional system which encourages economic and social separation by caste, corruption and gender biases.

Supporters of the law see this as India's opportunity to encourage desperately needed foreign direct investment (FDI) to be pumped into the system. Experts claim that $1 trillion (USD) will be needed in infrastructure improvements over the next five years.

Challenges face retailers from warehouse to storefront

Anyone who has visited India has experienced first-hand that the quality of roads, buildings, and infrastructure fall far behind other emerging and competing markets. The tangential enhancements from an influx of global retailers could include improved storage facilities such as well constructed refrigerated warehouses.

It has been estimated that nearly one-third of the produce farmed in India spoils before it arrives to market. This is not only due to improper storage, but also results from extended drive-times and the unnecessary middle-market dealers. It also would be safe to assume that companies such as Wal-Mart, who pride themselves on efficiency in logistics (a cost-cutting measure), would insist on improvements being made to the roadways and traffic patterns. Finally, these companies would increase the quality of building standards, architectural design, and construction materials used, perhaps modeled after stores in developed countries.

I predict that this loosening of multi-brand retail regulation will prove to be highly beneficial for India and is one piece of the puzzle that has been holding it back from creating a modern built environment. I have been required to visit clients and inspect their occupied real estate in India on several occasions.

Touring shopping districts yields unpleasant surprises

During my first visit, I had a free afternoon and asked the concierge at the Taj Lands End in Mumbai to send me to the central business district and local shopping area. He quickly called a cab that escorted me to a Class B mid-rise building. I'm not sure if they misjudged my tastes, but the retail scene they chose to highlight was disappointing to say the least. I stepped out to find a more authentic market and was once again let down by the cheap goods displayed haphazardly in makeshift huts.

Since that first visit I have seen other examples of retail in Mumbai, New Delhi, and even the popular Mahatma Gandhi Road (also known as “Camp” or MG Road) in Pune and each time left feeling less than satisfied. Mind you, I was not necessarily seeking Wal-Mart stores, nor something akin to the ever popular Zeil Strasse in Frankfurt, but hoped for an authentic market with well thought-out product display in a modern retail store.

My point is that perhaps the multi-brand retailers will set a standard which the local kirana owners can mimic and therefore provide a more pleasurable shopping experience for locals and tourists alike. Furthermore, the country as a whole will benefit from improvements in infrastructure and a redeveloped urban landscape.

Diana C. Golob is a senior vice president with Cleveland-based Ostendorf-Morris Co. In her role managing global real estate portfolios for Fortune 1000 and middle-market companies, she is required to visit her clients and their properties in the United States and abroad. She has been to India twice.

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